iPhone 5 not just a phone; it's a stimulus too

September 15, 2012
by Rob Lever

The new iPhone 5 is displayed during an Apple special event. Apple's iPhone 5 is one of the biggest product launches ever in the sector, and may also deliver a well-timed stimulus to the US economy ahead of the presidential election, analysts say.

Apple's iPhone 5 is one of the biggest product launches ever in the sector, and may also deliver a well-timed stimulus to the US economy ahead of the presidential election, analysts say.

Apple is expected to sell as many as 10 million of the devices in just the first days of the launch starting September 21, and upwards of 50 million in the fourth quarter, including a big chunk in the United States.

JP Morgan economist Michael Feroli said he sees the iPhone 5 adding between 0.25 and 0.5 percentage points to US economic activity in the fourth quarter, based on projected US sales of eight million.

Feroli said it was a simple math calculation: if the phones are worth $600, including carrier subsidies, minus $200 for import costs, that would be $3.2 billion in net sales, or $12.8 billion at an annual rate, boosting gross domestic product (GDP) by 0.33 points.

Cary Leahey, chief US economist at Decision Economics, said the calculation "makes sense."

"It just shows the power of an extremely popular product which is priced very dear," Leahey said.

He said the boost was "noticeable but not earth-shattering."

But with the US economy having expanded at a tepid 1.7 percent pace in the second quarter, the stimulus will be well-timed.

"The economy absolutely needs it, it could not come at a better time," said Joel Naroff at Naroff Economic Advisors.

"Household incomes are flat, real disposable income is going nowhere. You don't have any source of fuel, so it's got to come from somewhere."

Naroff said that US consumers will likely pull money out of savings for the iPhone and similar devices, and in some cases, it may be simply a matter of pulling the spending forward.

"The net impact on the economy is not clear," he said.

Paul Krugman, a Princeton University economist who blogs for The New York Times, said the stimulus effect underlines how the US economy is dependent on consumer spending.

"To believe that more spending will provide an economic boost, you have to believe—as you should—that demand, not supply, is what's holding the economy back," Krugman wrote.

"We don't have high unemployment because Americans don't want to work, and we don't have high unemployment because workers lack the right skills.

"Instead, willing and able workers can't find jobs because employers can't sell enough to justify hiring them. And the solution is to find some way to increase overall spending so that the nation can get back to work."

Krugman added that "over time, there will be more equipment that needs replacing, more iPhone-like innovations that boost spending, and, in the long run, we will exit this economic trap."

Even before the iPhone 5, Apple cited a study showing it has created or supported more than 500,000 US jobs, including 47,000 at Apple alone and 200,000 in the so-called "app economy."

Apple's launch comes amid a spate of new product releases expected to woo US consumers in the pre-holiday season.

The Consumer Electronics Association projects record sales of electronics of $206 billion this year, the first time above the $200 billion mark.

Along with phone launches, Microsoft is producing its own Surface tablet computer, Google has introduced a tablet and smartphone and Amazon has upgraded its Kindle Fire tablets.

And Apple is expected to launch a "mini iPad" in the coming weeks to cement its position in the tablet market.

All this has the potential to boost share prices, consumer spending and the so-called supply chain involving component makers. Apple's record stock price surge has helped push the Nasdaq stock exchange to its highest level since 2000, after the dotcom collapse.

Morgan Stanley analyst Katy Huberty said Apple may ship between 48 million and 53 million iPhones in the fourth quarter and "up to 266 million" in 2013.

Contrary to popular belief, the largest portion of the proceeds from iPhone sales flow to the United States, not China, said Jason Dedrick, professor of information studies at Syracuse University.

"Virtually none of the profits go to China," he added.

A 2011 study by Dedrick with researchers Kenneth Kraemer and Greg Linden concluded that 58 percent of the iPhone cost went to Apple profits, with materials representing some 22 percent and labor costs in China just 1.8 percent.

"We estimated about $10 in wages for each iPhone going to workers in China for the iPhone or iPad," he said.

Even with the stimulus, most economists say the iPhone and other devices probably won't make a difference in the November election.

Leahey said the introduction is too late to have an impact on jobs before November, and that more important is "the public perception of the labor market," which is unlikely to change in the next two months.

Related Stories

It's beginning to look a lot like a big season in the United States for mobile gadgets, with the still-rumored launch by Apple in September of a new iPhone, expected to ignite fresh growth in the smartphone market in the ...

On the theory that a driver who knows when a red light will turn green is more relaxed and aware, vehicle manufacturer Audi is unveiling this week in Las Vegas a technology that enables vehicles to "read" traffic signals ...

There you are, cruising down the freeway, listening to some tunes and enjoying the view as your autonomous car zips and swerves through traffic. Then the fun ends and it becomes time take over the wheel. How smooth is that ...

Economy is in the toilet because every American is in debt to the Bank of England, just as homeowner who only can pay interest on his mortgage and never hope to pay down the principal. I looked at US $10 bill from 1913 it says "This note is legal tender for all debts public and private, and is redeemable in LAWFUL MONEY at the United States Treasury, or at any Federal Reserve Bank." But now that language has been stripped! Your debt notes are not redeemable for real property! The banksters have taken all real property into their own name and now are not bound to offer real property for their worthless debt notes! All Americans have is debt and worthless debt notes they stupidly call "money." If it was "money" why would the debt note say it was redeemable for money??? And now it's not redeemable for money??? USA is so screwed.

That we'll see a spike in the GDP from mobile phone sales is pathetic. What happened to the juggernaut of industry that the U.S. once was? This article speaks to the decline of once great civilizations like Ancient Rome from a fatal series of judgements, although I don't think Rome outsourced any production to China. There is also a disturbing aspect of the "class divide", where only the affluent can afford this high ticket toy. Once again, the "new" economy disenfranchises the working class.

Fiat money has not been backed by anything physical in any country for a long time. It's value is derived from the strength (or weakness) of the economy of the country that prints it, and the amount of money circulating. That's why the US dollar takes a dive vs other currencies every time they announce a stimulus. It's worth less because there's more of it printed but the US economy is still the same size, so it's devalued.

The problem here is that the US thinks that going into debt more, both on a personal level and as a country, is somehow good for the economy. But it's short term gain for long term economic destruction, you can't just keep owing more and assuming someone else later on will pay it off or even just pay the interest.

The US needs to make an infrastructure that makes things that people buy rather than spending. Little is made here anymore, so all the money flows out. Apple is somewhat of a blip in the trend, and is highlighted, but it's not the trend.

It is certainly interesting to see how republicans will buy iPhone5s. The phone is designed in the US, so that would be patriotic to buy an Apple product. On the other hand, how much religious republicans want to support openly gay CEO Cook.

"The US needs to make an infrastructure that makes things that people buy rather than spending. Little is made here anymore, so all the money flows out. Apple is somewhat of a blip in the trend, and is highlighted, but it's not the trend."- SDrapak

This is mostly correct, but Apple gives it's assembly jobs to China, creating "slave dormitories" whose windows serve as an escape route for workers driven to suicide from the endless drudgery. So when you buy an iPhone, there will be bloody fingerprints on its shiny white shell.

the phone is designed in the US, so that would be patriotic to buy an Apple product.

Such a protectionist behavior is not what the free market economy is based on - it's rather typical for countries with strong governmental control. So every extreme anti-socialistic stance contains a dual traits in its very nature. The contemporary generation of conservatives aren't capitalists, but corporationalists in their nature.

I've said for years, if you want to turn this economy around, legalize and tax sin. Drinking, gambling and smoking alone aren't enough. Include drugs and prostitution. Legalize them,regulate them, monitor them and tax them.

"Household incomes are flat, real disposable income is going nowhere. You don't have any source of fuel, so it's got to come from somewhere."

Right...do your part for the economy by spending money you don't have to purchase the latest-greatest telephone. LMAO! No doubt the US economy is driven by consumer purchases of things they do not need.

War seems to be the best economic stimulus we have going for us - hardware, ammo, fuel, payroll, etc. Now we'll stimulate some more by re-building embassy buildings - just wish we would field a full-time fleet of A-10 Warthogs to protect those embassies.

Given the facts, iPhone is manufactured at Taiwan from East Asia components (Samsung) and Apple evades the paying of taxes as much as possible - how the USA could expect some significant stimuli of economy just from iPhone sales?

"That we'll see a spike in the GDP from mobile phone sales is pathetic. What happened to the juggernaut of industry that the U.S. once was?" -

Starting in the 1980's under Reagan, Conservatives started to move American Industry to foreign countries to find a workforce who would work for peanuts, thereby depriving American workers of their jobs.

The Libertarian claim was that America was losing dirty smokestack jobs that would be replaced by better paying, shiny, high tech jobs in the "information industry", and since Americans were the brightest, best educated people in the world, those IT jobs would never leave.

All Americans have is debt and worthless debt notes they stupidly call "money."

If it is worthless, as you say, then you wouldn't mind lending me a $100?? :)

I don't have your government's blessing to print your worthless debt notes. I can simply go to the family gold mine and forge coins with intrinsic value. I don't need backing of the military for people to accept my coins. Sure the dollar has has so long as there are suckers who will trade it for real property. There are electronics sold on Ebay for ten times their street value. But in the end a fool and his money are soon departed.

kochevnik - what are you babbling on about. The US is a sovereign country and if it is in hock to anything it is the global banking system of which the US banks are an integral part as you may not have noticed. Countries are irrelevant in this so the reference to England is pointless.

Only be a 'spike' in GDP as GDP measurements will pick up the transactions. Not really an indication of economic wellbeing in terms of creating real jobs. More muppets buying a new toy will be good for Taiwan and China as that is where the toy is assembled.

This is ridiculous. Iphones will save the economy (but kill millions of idiots so distracted by their smart phone they will end up in a fatal accident)

I think iphones should be against the law without a special permit. lol not really but ffs get off your cell phone and take a look at the REAL world full of horrible and devastating, mostly thanks to idiots burying their heads in the iphone sands.

Because of Apple, the iPad and the iPhone, I am not an unemployed programmer. Instead I make a six figure salary writing apps. My retirement is nearly fully funded after ~5 years of steady work in this area. Folks need to give up on the manufacturing jobs and train UP! Get to work, it's fun too!

...it will be a stimulus once they finally put the motorola 3200 Mha battery in it, so it will be able to stimulate us for more than 8 hours, sd-card, so we can stimulate outside the box,1080p oppo screen and nokia pureview like camera to capture and relive our most stimulating moments and a host of other stimulating features that are commonplace on other phones... i still say black tulip trade while others are growing wild orchids as we speak. Not that the Isheeple will care they be happy to have themselves gratefully milked and be amazed at the iphone6 sporting a can you believe it 4,5 inch screen.

"US economy is dependent on consumer spending. "But it is spending that creates wealth.Keynesian like Krugman believe any spending will do. Just print up some money and give it to people to spend and viola, the economy is 'stimulated'.But money is not wealth. It only represents wealth and only has the value a govt states is has OR what people will accept in exchange. Govt can fix prices which only creates shortages and govt can create more money out of the ether which results in higher prices because the unit value of the currency drops.QE3 will fail just as the two before did.

Still a lot of effort and cost to keep it rigid. Sooner or later it will need to be a semi-rigid assembly, at which time it will cost a lot less and wear out a lot faster. Unless they can come up with a plastic screen as durable as glass. Perhaps flexible glass?

Cheaper and less durable would mean the opportunity for more frequent improvements.

i got an idea, we put a pink ribbon on turds and sell them for 299, if enough people buy that crap, we spend ourselves out of the downturn, to meet the demands of the unions, the turds will be produced by american labour, so the shit circulates within the own economy, its a win win situation, this will provide the economic boost to invest in proper education so the next generation of tech savvy startups can come up with new paradigma shifting innovations, like for instance, use blue ribbons instead....

me too!, i asked my boss for a 6 figure raise and in a stroke of generosity he added 0,00006 cents to my hourly wage,

all i am trying to say that the iphone5 is not a bad phone at all, its pretty decent, but not as groundbraking as the first iphone was at the time it was released, looking at what the competition has stacked up against the iphone5, you have to take the leap of Ifaith to buy something that is increasingly more reliant on astroturfed hype than on substance, the patentwars and fake/staged sold out notifications on the pre-order sites (really as if the demand in the first 48 hours was so high they couldn't meet it) are testamental to this, got to go now my tulips need water badly.

Please sign in to add a comment.
Registration is free, and takes less than a minute.
Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.